Bernanke urges Congress to enact financial reform
Last Updated: Friday, October 23, 2009 | 9:53 AM ET
The Associated Press
U.S. Federal Reserve Chairman Ben Bernanke testifies before the House Budget Committee on Capitol Hill in Washington in June. (Jim Young/Reuters)U.S. Federal Reserve Chairman Ben Bernanke prodded Congress Friday to enact legislation overhauling the nation's financial regulatory system to prevent a repeat of the banking and credit debacles that had thrust the country into crisis.
"With the financial turmoil abating, now is the time for policymakers to take action to reduce the probability and severity of any future crises," Bernanke said in remarks to a Fed conference in Chatham, Mass.
For its part, the Fed has been taking steps to strengthen oversight of banks and sharpen consumer protections, and on Thursday unveiled a sweeping proposal to police banks' pay policies to make sure they don't encourage top executives and other employees to take reckless gambles.
But Congress needs to step in and close regulatory gaps and make other changes that only lawmakers have the power to do, Bernanke said.
At the top of Bernanke's list: Congress must set up a mechanism — along the lines of what the Federal Deposit Insurance Corp. does with troubled banks — to safely wind down big financial firms whose failure could endanger the entire financial system.
And the costs for such a mechanism should be paid through an assessment on the financial industry, not by taxpayers, the Fed chief said.
Moreover, Congress needs to establish better systems for regulators to monitor risks lurking in the financial system, he said.
The Obama administration has proposed such action as part of its revamp of financial rules. Its plan would expand the Fed's powers over big financial institutions but reduce it over consumers. Congress, however, is leery of expanding the Fed's reach because it and other regulators failed to crack down on problems that led to the crisis.
A House panel on Thursday approved a piece of the Obama plan, creating a federal agency devoted to protecting consumers from predatory lending, abusive overdraft fees and unfair rate hikes. Doing so, however, strips some powers from the Fed.
Bernanke, in his remarks Friday, talked about the Fed's efforts to bolster consumer protections.
He also said the Fed is working on rules to better safeguard consumers from abuses when it comes to overdraft protection, reverse mortgages and gift cards. But he didn't get into a public debate over whether the Fed — or a new consumer agency — is best equipped to do the job.
